Invest with an adviser, or a DIY approach?

You’ve probably seen the soothing ads from the big banks saying they can help you realize a prosperous retirement, achieved with help from their advisers and their mutual funds.

So it’s jolting to see those hardhitting Questrade ads telling you to do pretty much the opposite — invest without a mutual fund adviser so you can keep most of their fees for yourself.

In one Questrade ad, a professor tells a young investor that high mutual fund fees are “your greatest enemy.”

So which is it? Are mutual fund advisers instrumental to realizing your retirement dreams or a hindrance whose high fees are thwarting them?

In my view, the truth isn’t clear cut. adviser quality varies dramatically and so do investor needs. The right answer for you depends on several factors.

Yes, mutual fund fees are stubbornly high and deserve to come down. But while fees are important, the key thing to focus on is getting value through whatever investing approach works best for you, with or without that mutual fund adviser.

Mutual fund advisers are the main providers of financial advice to average Canadians. They work in bank branches and other financial institutions. (Other types of advisers like brokers and portfolio managers usually serve wealthier clients.)

Total investment fees for a balanced portfolio of mutual funds purchased through an adviser average about two per cent a year. That typically breaks down to about one per cent for adviser services and one per cent for the mutual fund. Over decades of saving, those fees can compound to hundreds of thousands of dollars, as the Questrade ads point out.

Licensing requirements to sell mutual funds are minimal. Many staffers in bank branches with basic skills don’t do much for you but sell “suitable” financial products. In the minimal case, you get a competently constructed portfolio but not much more. In that situation, fees can be a big drain without much offsetting value.

But there are also plenty of better qualified mutual fund advisers in bank branches and other institutions who provide broader and more extensive advice.

Often they have a financial planning designation and will prepare your financial plan. They can help you make effective use of tax-advantaged accounts and provide broader financial advice with issues like debt management or maximizing savings. If you don’t know much about investing, they help you avoid investment blunders. If you get well-qualified advice that meets an important need, the mutual fund fees you pay can be worth it.

While you can find value from the better financial advisers in bank

branches, there are also limits to what you should expect in that channel. As advisers serving the mass market, they generally divide their time among a large clientele, so each client gets limited attention.

If you’re looking for more extensive help from exceptionally wellqualified advisers, you usually need to look beyond bank branches and firms serving the mass market. You can pay directly for top-tier financial planning services from a feefor-service financial planner (which can be expensive) or get indepth advice from different types of investment professionals at firms serving wealthier investors (which typically requires at least $500,000 and often $1 million in assets).

The fact that Questrade doesn’t distinguish between advisers providing minimal value and those providing extensive value irks many financial professionals.

“Questrade goes after everyone with the same brush,” says Jason Pereira, a financial planner and portfolio manager who is founding ex-president of the Financial Planning Association of Canada. “They fail to acknowledge actual value of advice,” says Pereira, partner with Woodgate Financial Inc.

Questrade is a leading provider of online brokerage accounts and robo-adviser services, also known as online portfolio managers. Questrade’s robo-adviser offering is called Questwealth Portfolios.

These digital tools can help save you a lot of money in the right situation if used properly.

Do-it-yourself investors can potentially save the full two per cent in mutual fund fees as implied in the Questrade ads, but only under specific circumstances. They also need to follow a sensible and disciplined investment approach without an adviser.

And they only potentially save that much in comparison with the mutual fund adviser providing minimal assistance and negligible value-added.

While different do-it-yourself approaches can work, the most proven approach is to invest in low-fee passive ETFs with ultralow fees that track the market. In that case, the do-it-yourselfer can reasonably expect to roughly match market performance after fees because the impact of fees is negligible.

While succeeding with a passive do-it-yourself approach doesn’t require expert knowledge, you do need to understand a few investment basics and follow it with a modest amount of discipline. If you try to wing it picking stocks or ETFs on your own without a proven approach, chances are high that your investments will perform poorly. In that case, losses can easily be many times the fees paid for a mutual fund adviser.

Whether you save money or not by ditching an adviser also depends on the quality and extent of advice they provide. The minimal adviser who sets up your portfolio but doesn’t do much else provides questionable value because you can get that on your own using the passive ETF approach with negligible fees. In that case, it’s fair to consider the adviser fees as a drain on the portfolio.

But if the adviser provides broad financial advice and planning that meets an important need, then the value of their services might more than offset the fees they charge. (I will discuss further how advisers can add value in a future column.)

If you need a little bit of help with investments but not extensive human advice, then a robo-adviser might be a good choice.

Robo-advisers provide a largely automated online approach to matching you with a portfolio that fits your financial circumstances. Total fees for this service including the ETFs it uses range from about 0.4 to 0.7 per cent. Questwealth Portfolios is a reputable provider and one of the most inexpensive options.

If you go with a robo-adviser, you won’t save the full two per cent compared with the minimal mutual fund adviser, but you could save about one-and-a-half per cent after robo-adviser fees.

DAVID ASTON, A FREELANCE CONTRIBUTING COLUMNIST FOR THE STAR, IS A PERSONAL FINANCE AND INVESTMENT JOURNALIST. HE HAS AN M.A. IN ECONOMICS, A CHARTERED FINANCIAL ANALYST DESIGNATION AND IS A CHARTERED PROFESSIONAL ACCOUNTANT. HE PUBLISHED A NEW BOOK, “THE SLEEP-EASY RETIREMENT GUIDE,” IN JANUARY 2020. IT IS AVAILABLE IN BOOKSTORES ACROSS THE COUNTRY.

While succeeding with a passive do-it-yourself approach doesn’t require expert knowledge, you do need to understand a few investment basics and follow it with a modest amount of discipline